What Lies Ahead for Government Funding?

For the past 22 years, at this point in the year, we would be talking about how to get the government funded and off a Continuing Resolution. This year, however, for the first time since 1996, funding for the discretionary programs SGIM members care most about – NIH, CDC, AHRQ, VA research – have all been passed by the Congress and signed into law by the President.

This gives us the luxury of looking ahead to what is in store for next year. While we are not going to predict the outcome of the midterm elections, there are some fiscal factors at work that we can project as we gaze into our (often cloudy) crystal ball.

You may have read that President Trump last week directed his cabinet members to find ways to cut their individual departmental budgets by 5% next year (FY20), targeting discretionary government spending after the official tally from the Treasury Department showed that the tax cut enacted earlier in the years drove the federal budget deficit to its widest level in six years, a 17% increase.

“Get rid of the fat. Get rid of the waste,” Mr. Trump said in a cabinet meeting according to the Wall Street Journal. “It’ll have a huge impact.”

These comments ignore the fiscal reality that most of the increase in the deficit resulted from the enormous tax cuts the President sought and signed into law.

In his comments prior to the cabinet meeting, Mr. Trump didn’t address the impact of the tax cuts. He also didn’t touch on spending for entitlement programs, such as Social Security, that other Republicans have eyed for reductions but that he campaigned on protecting.

Shortly after the President’s statement, however, Senator Mitch McConnell, the Majority Leader in the Senate, indicated that he intends to address Social Security, Medicare and Medicaid, which he identified as the drivers of excess spending.

Mr. Trump told reporters he had agreed to the two-year budget deal setting discretionary defense spending at $700 billion in fiscal 2018 and $716 billion in fiscal 2019 because the military had been “depleted.” But he said Democrats had forced him to increase domestic spending as a condition of such bumps in military spending.

Earlier last week, the Treasury Department reported that the federal government’s budget deficit grew to $779 billion in the fiscal year ended Sept. 30, up 17% from the prior year. It was the largest deficit since 2012 and came as a result of last year’s sweeping tax cut, which helped reduce tax revenues as a share of gross domestic product to 16.5% from 17.2%.

Corporate tax receipts fell by 31%, a result of the top corporate rate being cut to 21% from 35% as part of the tax plan. Individual tax receipts were about flat in dollar terms. With the President talking about cutting programs (like NIH and CDC) and the Senate talking about cutting entitlements (like Medicare and Medicaid), AASLD members and your colleagues in research, teaching and practice will all be in the crosshairs of this relentless onslaught.